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2020 (11) TMI 415 - AT - Income TaxTaxability of receipts on hire of vessel on time charter basis - receipts from the time charter of the vessel “Smit Borneo” brought to tax in its hands as ‘royalty’ - charges received on account of time charter services rendered by the Appellant for the vessel 'Smit Borneo' to Leighton India Contractors Private Limited in India were rendered for the 'use' of industrial, commercial or scientific equipment, thereby treating the same as "Royalty" under section 9(1)(vi) - Whether time charter services shall be covered within the definition of the term "Royalty" under Article 12(4) of the India - Singapore Double Tax Avoidance Agreement ('DTAA') - HELD THAT:- As can be gathered from a perusal of the relevant extracts of the ‘agreement’ it can safely be concluded that as the assessee had received charges on account of time charter services rendered by its vessel ‘Smit Borneo’ along with the crew to Leighton India Contractor Pvt. Ltd., and not for allowing the latter the ‘use’ or ‘right to use’ of industrial, commercial, or scientific equipment, the same therein cannot be treated as ‘royalty’ within the meaning of Article 12(3)(b) of the India-Singapore tax treaty. We herein not being able to subscribe to the view taken by the lower authorities, to the extent they had concluded that the amounts received by the assessee for time charter of its vessel viz. ‘Smit Borneo’ was to be treated as royalty under Article 12(3)(b) of the India-Singapore tax treaty, therein vacate the same. As we have vacated the view taken by the A.O/DRP that the consideration received by the assessee from time charter of its vessel viz. ‘Smit Borneo’ was to be treated as ‘royalty’ as per Article 12 of the India-Singapore Tax Treaty, therefore, we refrain from adverting to the other contentions advanced by the ld. A.R to support its claim, which thus are left open. Grounds of appeal No. 2 to 4 are allowed in terms of our aforesaid observations. Mobilisation fees received by the assessee from Leighton India Contractor Pvt. Ltd. - Whether wrongly been treated as royalty, both under Sec. 9(1)(iv) of the Act, and Article 12(3)(b) India-Singapore tax treaty? - HELD THAT:- As observed by the A.O/DRP that as the mobilisation of the vessel viz. ‘Smit Borneo’ formed an inextricable part of the time charter services rendered by the assessee, thus the fees therein received were also to be assessed as royalty. As we have concluded that the consideration received by the assessee from time charter of the vessel viz. ‘Smit Borneo’ would not fall within the realm of the definition of the term ‘royalty’ as contemplated in Article 12 of the India-Singapore tax treaty, therefore, the mobilisation fees, which as observed by the A.O/DRP formed an inextricable part of such time charter services has to be similarly construed. As such, we vacate the treatment of the mobilisation fees received by the assessee as royalty by the lower authorities. The Grounds of appeal No. 5-7 are allowed in terms of our aforesaid observations. Amount received by the assessee towards reimbursement of expenses which were incurred by it for and on behalf of Leighton India Contractor Pvt. Ltd. - Whether to be assessed as royalty within the meaning of Sec. 9(1)(vi) of the Act, and Article 12(3)(b) of the India-Singapore tax treaty? - HELD THAT:- As neither the details of the expenses, which as claimed by the assessee were incurred for and on behalf Leighton India Contractor Pvt. Ltd., nor the basis of allocation of the common expenses to the share of the assessee are discernible from the records, therefore, it would be premature to adjudicate the said issue in the absence of the relevant facts. Accordingly, in all fairness we restore the issue to the file of the A.O, who is herein directed to verify the nature of the amounts which as claimed by the assessee were received by way of reimbursements from Leighton India Contractor Pvt. Ltd., and also, the basis of allocation of the common expenses to the share of the said charterer. Short credit of the tax deducted at source (TDS) - As against the credit for TDS that was raised in its return of income, the A.O had allowed credit of only ₹ 95,64,832/-, which had thus resulted to a short grant of credit of TDS of ₹ 24,64,351/-(principal amount) - HELD THAT:- As the aforesaid issue would require verification of the facts borne from the records, we therefore restore the same to the file of the A.O who is directed to look into the said grievance of the assessee. In case, the assessee is able to substantiate the fact as regards short allowing of credit of TDS in the course of the ‘set aside’ proceedings, the A.O is directed to issue the balance refund to the assessee, as per law. Ground of appeal No. 11 is allowed for statistical purposes.
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